Saturday, April 26, 2008

Do classical liberals and social democrats share common objectives?

Social democrats seek to use the powers of government to modify the outcomes of the market system in order to achieve widely-shared objectives. They often talk in terms of trade-offs between efficiency and equity. They believe that in the name of fairness it is sometimes appropriate for government to use coercive power to help some people (e.g. the deserving poor) at the expense of others (e.g. high-income taxpayers).

Classical liberals tend to be skeptical of such compromises because the classical liberal visions of freedom and fairness are the same - a world in which no-one exerts coercive power at the expense of others.

It does not necessarily follow, however, that classical liberals have no sympathy with the outcomes that social democrats seek to achieve. Even though classical liberals do not have collective views about the desirability of different societal outcomes I think that many who like to wear this label would consider that most of the outcomes that social democrats seek to achieve as having merit. For example, like most other people, many classical liberals would consider it desirable for everyone to have access to incomes above minimal levels and for everyone to have access to education and health services that are above minimal standards.

Such views can be the result of enlightened self-interest – e.g. choices of distributive principles behind a veil of ignorance - rather than the result of altruism. As James Buchanan has pointed out, the Golden Rule clearly implies the ethics of reciprocity (a relationship among natural equals) rather than the ethics of benevolence - a relationship that implies that givers and receivers have different status. (See: “Why I, too, am not a conservative”, 2005, p 49.)

In conceptual terms, the difference between classical liberals and social democrats lies in the willingness of the latter to use the coercive powers of the state to achieve outcomes that they consider to be desirable (i.e. the things they label as social objectives). In practice, however, even such luminaries among classical liberals as Adam Smith, Milton Friedman and F. A. Hayek saw some circumstances in which use of the coercive power of the state was warranted to achieve better social outcomes (such as in provision of education and alleviation of poverty).

How can a person who claims to be a classical liberal rationalize the use of coercive power for such purposes? Different people do it in different ways and sometimes the same person does it in different ways at different times. It seems to me (at the moment at least) that if we can assume that a very high proportion of the population support provision of a social safety net then it is reasonable to choose the method of providing it that minimises costs. I imagine that the transactions costs associated with use of the tax system for this purpose would be much lower than for voluntary contributions.

I acknowledge that funding of a social safety net via taxation involves unfair treatment to those who would not choose to have such a social safety - even behind a veil of ignorance - but I don’t know how it would be possible to distinguish such conscientious objectors from potential free-riders who would like to have a social safety net without helping to pay for it. It seems to me that the welfare costs of taxing conscientious objectors for this purpose may not be large they retain the right of exit (i.e. the right to move their capital and place of residence to a lower tax jurisdiction).

In addition to support for a social safety net classical liberals and social democrats may potentially also have other objectives in common. For example:

Supporting use of more efficient methods to pursue government objectives. It is important to avoid creating unnecessary welfare dependency. It is important to avoid creating unnecessary disincentives to work effort, saving, investment etc. It is just as important for delivery systems for health, education services etc to be exposed to market disciplines as for other goods.

Resisting attempts by narrow interest groups to corrupt the political system. For example, all government programs should be subject periodical public reviews to consider whether stated objectives are being met efficiently and equitably. For more about the role of such transparency requirements, see here.

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